In this course, you will learn about the role of operations and how they are connected to other business functions in manufacturing- and service-focused organizations. You will learn and practice the use of decision-making frameworks and techniques applicable at all levels, from management-level strategic decisions such as connecting process to the needs of various customer segments, to front-line tactical decisions such as choosing between ordering larger quantities vs. ordering more frequently.
Upon successful completion of this course, you will be able to:
• Understand the role of operations management
• Relate underlying principles to operations management frameworks and techniques
• Synthesize information to make strategic operations decisions
• Evaluate processes on different dimensions
• Apply analytical techniques for tactical operations decision
This course is part of the iMBA offered by the University of Illinois, a flexible, fully-accredited online MBA at an incredibly competitive price. For more information, please see onlinemba.illinois.edu.

OG

I love this course, even for not native speaker it's not to hard, only was not to easy to understand assignment questions and answers. But with google translate help I passed first module! :-)

FF

Nov 08, 2016

Filled StarFilled StarFilled StarFilled StarFilled Star

Very good course. Explanation is really clear, the topic is really on the spot and applicable. I am surprise to found that all the topic is really linked to my current and previous work.

Из урока

Module 2: Inventory management

In this module, you will learn the importance of inventory management, and effective ways to manage inventories. We will explore different types of inventories and why organizations maintain inventories. You will learn about macro-level inventory performance measures, as well as the various drivers that affect the amount of inventory. You will learn how inventories are managed, how much should be ordered and when. You will learn analytical models, such as the Economic Order Quantity and Economic Manufacturing Quantity, that optimize the order or manufacturing quantities to minimize cost. The effects of lead times and demand variability on inventory management decisions will be discussed and you will learn to calculate safety stocks and re-order points.

Преподаватели

Udatta Palekar

Associate Professor

Текст видео

In the early 1950's, the Vice-President of Toyota Motor Company, Taiichi Ohno, visited the United States. While he was here, he visited grocery stores and he saw how people picked up stuff from grocery stores depending on what they needed and how it was felt. What he realized is that the reason why there's so many things in the grocery stores and yet the grocery stores run them relatively effectively, is that people only buy things that they need and then they come back and ask for more. This was a revelation for him which resulted in his whole concept of just-in-time manufacturing. The idea behind that was to reduce inventories, the inventories within manufacturing plants. Now, a simple observation like that revolutionized the whole manufacturing process. One of the key things that one should look at in this particular case is this concept of inventories. So, allow me to talk to you a little bit about how large a problem this is. So, according to the Census Bureau, at the end of March 2018, all US inventories stood at $1.929 trillion almost $2 trillion. Out of that, manufacturers held $677 billion, retailers had $674 billion and wholesalers who are intermediaries held $627 billion. So, roughly, a third of all inventories was held by the manufacturers retailers or wholesalers. So, we can see that this is a massive massive problem considering that 1.929 trillion is a fairly significant number. So, what are these inventories? Inventories are goods are materials that are in any stage of readiness and are being held for future sale. All of operations management is concerned with the fulfillment of demand for a product or demand for service and this fulfillment requires us to carry inventories. Now, there are multiple reasons why we might decide to carry inventories. For example, we might have a setup cost when we decide to set up a machine or when we decide to order from a supplier. These costs have to be paid for every time that we decide to either manufacture or we decide to order. If we choose to order too often, we have to pay a lot of setup costs. So, accordingly, what we've tried to do is order in batches. When we order in batches, we end up with a large chunk of the good that we're ordering and then we slowly depleted, but in the meantime, we are holding inventory. This kind of inventory is being held for transactional efficiency reasons so that we're not doing too many transactions of ordering or setting up our machinery. A second reason why we might choose to carry inventory is speculation. So, if we expect, for example, prices to go up next month, it makes sense for us to buy things right now and hold on to those things. For example, countries where there is a lot of inflation, countries like Zimbabwe, for example. The minute you get paid, the best thing you can do instead of saving the money is to take the money and go out and buy things for your household because the next day the prices are going to be higher, so the sooner you buy the better off you are. So, you carry inventory because you're speculating that costs are going to go up. A third reason that you keep inventory is what we'll call hedging. This is to take care of the fact that things can be uncertain. We do not know, for example, what the demand is going to be for a particular item. We do not know if supplies are going to be available. To protect ourselves from these uncertainties, we decided that we're going to keep inventors. Lastly, we might want to carry inventory for strategic positioning. For example, the United States has a big buffer of petroleum supplies. This is a strategic petroleum reserve that the US government carriers. Why? Because that prevents it from being held hostage in the event of a war by foreign powers who supply us with petroleum. So, this is strategic positioning, companies do this as well when they buy an extra amount so that they have stuff available so that a supplier can not hold them hostage. So, there are four primary reasons why inventories are kept; transactional efficiency, speculation, hedging and strategic positioning. Now, we can think of inventories in a variety of different ways. We can think of the type of inventory based on the stage of completion of this inventory. So, for example, we might think in terms of raw material inventory. These are the inputs that go into our process. During the process, we have inventories of partially finished product. This we call a work-in-process inventory. Finally, we may have an inventory of finished product which we'll call our finished goods inventory. We might also look at inventory based on the reason why we are keeping the inventory. So, we might, for example, in the case where we order a large batch and then consume it, that inventory is called cycle inventory. Inventory that is kept to hedge against uncertainty. For example, if we have uncertain demand or uncertain supply, we might keep a safety stock. If we have certainty that demand is going to increase, for example, demand for items that are seasonal in nature, we might keep inventory that we will call anticipation inventory. If we have ordered inventory, if we've ordered from a supplier and that order hasn't been received yet, we might call it pipeline inventory. This is inventory that's in order or that's in transit. We might have strategic inventory that we might keep to position ourselves for better negotiation. Now, when we think in terms of inventories, given the various inventories that we keep, it's important to think in terms of how do we measure inventories. So, there are some macro level metrics that are used to measure inventories, and those are used sometimes at a national level other times they are used at a corporate level or at a location of a particular corporation, for example, a warehouse. One of the metrics that's often used is what's called the inventory turnover ratio or the inventory turns. This is calculated by looking at the cost of goods sold and then dividing it by the average amount of inventory that we have in our system. So, we look at the cost of goods sold instead of looking at the sale price of the good mainly because it is how much money we have invested in that particular good. Then, the average inventory, we can calculate based on our starting inventory in the period and the ending inventory in the period and then looking at the average of that. Now, we may also look at what's called periods of inventory. So, how many days worth of inventory do we carry or how many weeks worth of inventory do we carry on average? So, the period is selected depending on what's appropriate in our particular context, it could be days, it could be weeks, it could be months. The way it's calculated is we look at the average inventory that we have and we divide it by the cost of goods sold. So, in this sense, the inventory turnover ratio is the reciprocal of the periods of inventory. So, calculating one and taking the reciprocal gives us the other metric. Let's take an example. Let's take the example of Starbucks corporation. So, for the quarter ending 2018, Starbucks cost of goods sold as reported by Starbucks was $2,516 million or $2.516 billion. At the same time, the average inventory over that quarter was 1.345 billion or 1345 million. So, now, we can calculate the inventory turns for Starbucks as the cost of goods sold divided by the average inventory. If you plug in the numbers, we get the inventory turns to be 1.87. How many months of inventory is that? Well, we can calculate that by looking at the average inventory 1.345 billion divided by the cost of the goods sold which is 2.516 billion. I'm multiplying by three because I want to convert it into months, and all the numbers are for a quarter. So, multiplied by three then gives me 1.604 months. I can similarly convert it into days of inventory, and because now this is days of inventory, I have to find out how many days there are per quarter. So, I'm taking 365 divided by four as the multiplier and that gives me 48.78 days of inventory. I can look at a larger scale and I can look at US business inventories. So, if you look at US business inventories and we track the years of supply of inventory, what we notice is, and data comes from the US Census Bureau, what we notice is that the inventory levels were quite high in 2008 but then we had the downturn which caused inventory levels to drop because businesses became very careful and the lower the amount of inventory that they were carrying. Now, as we see economy pick up, you see that the years of supply of inventory starting to increase and then we see a slight downturn again as people became unsure about the political climate. So, inventories are a reflection of what happens in the larger economy, what happens from a company's point of view, how they look at their own business outlook as well as the economic outlook. So, in summary then, what we've looked at right now in this particular module are the reasons for keeping inventory. We've looked at the types of inventory and we have looked at some macro measures of inventory performance.